##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from _____ to _____
 Commission
File Number 0-30539
 TVIA, INC.
  Delaware
    
    94-3175152(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification number)
 
  
 þ o
  o o þ
 o þ
    i




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##### 



FORM 10-Q
 QUARTERLY PERIOD ENDED DECEMBER 31, 2005
 INDEX
 PagePart I: Financial InformationItem 1: Financial StatementsUnaudited Condensed Consolidated Balance Sheets
    
    
    1Unaudited Condensed Consolidated Statements of Operations
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4: Controls and Procedures
    
    
    32Part II: Other InformationItem 5: Other EventsItem 6: Exhibits
    
    
    33Signatures
    
    
    34EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  ii




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 TVIA, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(unaudited)
 December 31,
    
    
    March 31,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,070
    
    
    $
    4,078Short-term investments
    
    
    8,865
    
    
    
    17,664Accounts receivable, net
    
    
    3,044
    
    
    
    792Inventories
    
    
    1,712
    
    
    
    598Other current assets and prepaid expenses
    
    
    958
    
    
    
    881Total current assets
    
    
    20,649
    
    
    
    24,013Property and equipment, net
    
    
    985
    
    
    
    1,088Other assets
    
    
    375
    
    
    
    386Total assets
    
    $
    22,009
    
    
    $
    25,487LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    664
    
    
    $
    302Accrued liabilities and other
    
    
    2,405
    
    
    
    1,738Short-term portion of notes payable
    
    
    630
    
    
    
    460Total current liabilities
    
    
    3,699
    
    
    
    2,500Long-term portion of notes payable
    
    
    204
    
    
    
    345Total liabilities
    
    
    3,903
    
    
    
    2,845Commitments and contingencies (Note 7)Stockholders equityCommon
stock, $0.001 par value: 125,000 shares authorized; 23,647
and 23,171 shares outstanding, respectively
    
    
    24
    
    
    
    23Additional paid-in-capital
    
    
    94,667
    
    
    
    93,118Accumulated comprehensive income (loss)
    
    
    18
    
    
    
    (89
    )Accumulated deficit
    
    
    (75,853
    )
    
    
    (69,660
    )Treasury stock
    
    
    (750
    )
    
    
    (750
    )Total stockholders equity
    
    
    18,106
    
    
    
    22,642Total liabilities and stockholders equity
    
    $
    22,009
    
    
    $
    25,487
  1




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##### Table of Contents



TVIA, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    2,710
    
    
    $
    1,090
    
    
    $
    5,573
    
    
    $
    2,235Cost of revenues
    
    
    1,306
    
    
    
    589
    
    
    
    2,875
    
    
    
    1,232Gross profit
    
    
    1,404
    
    
    
    501
    
    
    
    2,698
    
    
    
    1,003Operating expenses:Research and development
    
    
    1,341
    
    
    
    1,206
    
    
    
    3,876
    
    
    
    3,716Sales and marketing
    
    
    866
    
    
    
    434
    
    
    
    2,129
    
    
    
    885General and administrative
    
    
    1,044
    
    
    
    545
    
    
    
    3,213
    
    
    
    1,408Total operating expenses
    
    
    3,251
    
    
    
    2,185
    
    
    
    9,218
    
    
    
    6,009Operating loss
    
    
    (1,847
    )
    
    
    (1,684
    )
    
    
    (6,520
    )
    
    
    (5,006
    )Other income, net
    
    
    114
    
    
    
    104
    
    
    
    325
    
    
    
    303Net loss
    
    $
    (1,733
    )
    
    $
    (1,580
    )
    
    $
    (6,195
    )
    
    $
    (4,703
    )Basic and diluted net loss per share:
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.26
    )
    
    $
    (0.21
    )Shares used in computing basic and diluted net loss
    
    
    23,579
    
    
    
    22,857
    
    
    
    23,390
    
    
    
    22,754
  2




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##### Table of Contents



TVIA, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 Nine Months EndedDecember 31,2005
    
    
    2004Cash Flows from Operating Activities:Net loss
    
    $
    (6,195
    )
    
    $
    (4,703
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    916
    
    
    
    901Loss on disposal of fixed assets
    
    
    
    
    
    
    104Write-down of license technology
    
    
    
    
    
    
    81Stock based compensation
    
    
    1,039
    
    
    
    Stock issued in settlement of lawsuit
    
    
    120
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,252
    )
    
    
    (335
    )Inventories
    
    
    (1,114
    )
    
    
    98Prepaid expenses and other current assets
    
    
    (46
    )
    
    
    (164
    )Accounts payable
    
    
    362
    
    
    
    18Accrued liabilities and other
    
    
    669
    
    
    
    2Net cash used in operating activities
    
    
    (6,501
    )
    
    
    (3,998
    )Cash Flows from Investing Activities:Purchase of available-for-sale investments
    
    
    (11,990
    )
    
    
    6,554Proceeds from sale of available-for-sale investments
    
    
    20,896
    
    
    
    (4,311
    )Proceeds from sale of software unit
    
    
    
    
    
    
    753Purchase of property and equipment
    
    
    (459
    )
    
    
    (409
    )Net cash provided by investing activities
    
    
    8,447
    
    
    
    2,587Cash Flows from Financing Activities:Repayments of note payable
    
    
    (345
    )
    
    
    Repayments of capital lease obligations
    
    
    
    
    
    
    (378
    )Proceeds from issuance of common stock
    
    
    391
    
    
    
    226Net cash provided by (used in) financing activities
    
    
    46
    
    
    
    (152
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,992
    
    
    
    (1,563
    )Cash and cash equivalents at beginning of period
    
    
    4,078
    
    
    
    3,259Cash and cash equivalents at end of period
    
    $
    6,070
    
    
    $
    1,696Supplemental Cash Flow Information:Interest paid
    
    $
    20
    
    
    $
    Note payable issued for the right to the use of design software
    
    $
    374
    
    
    $
    920
  3




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##### Table of Contents



TVIA, INC. AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1  INTERIM STATEMENTS
   NOTE 2  SUMMARY OF SIGNIFICANT POLICIES
 Use of Estimates
   Consolidation
  Cash and Cash Equivalents and Short-Term Investments
  4




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##### Table of Contents



Allowance for Doubtful Accounts
  Inventories
  Property and Equipment
  Impairment of Long-Lived Assets
 
 Revenue Recognition
   Software Development Costs
  5




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##### Table of Contents



Research and Development Expenses
  Income Taxes
 Accounting for Income Taxes.
 Comprehensive Income (Loss)
  Three Months Ended
    
    Nine Months EndedDecember 31,
    

    December 31,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (1,733
    )
    
    $
    (1,580
    )
    
    $
    (6,195
    )
    
    $
    (4,703
    )Change in unrealized gain (loss) on available-for-sale-investments
    
    
    11
    
    
    
    (40
    )
    
    
    107
    
    
    
    (113
    )Comprehensive loss
    
    $
    (1,722
    )
    
    $
    (1,620
    )
    
    $
    (6,088
    )
    
    $
    (4,816
    )
 Recent Accounting Pronouncements
  6




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##### Table of Contents



Employee Stock benefit Plans
 Stock Option Plans
 2000 Stock Incentive Plan and 2000 Employee Stock Purchase Plan
    SARS Plan (Stock Appreciation Rights)
  Out of Plan Options
   7




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##### Table of Contents



WeghtedOptions
    
    
    
    
    
    
    AverageAvailable
    
    
    Options
    
    
    Exercisefor Grant
    
    
    Outstanding
    
    
    PriceBalance at March 31, 2004
    
    
    2,245
    
    
    
    4,894
    
    
    
    1.74Additional shares reserved
    
    
    730
    
    
    
    
    
    
    
    Granted
    
    
    (1,707
    )
    
    
    1,714
    
    
    
    1.44Exercised
    
    
    
    
    
    
    (496
    )
    
    
    0.51Cancellations
    
    
    729
    
    
    
    (729
    )
    
    
    2.17Balance at March 31, 2005
    
    
    1,997
    
    
    
    5,383
    
    
    
    1.71Granted
    
    
    (1,765
    )
    
    
    1,765
    
    
    
    1.39Exercised
    
    
    
    
    
    
    (121
    )
    
    
    0.89Cancellations
    
    
    193
    
    
    
    (193
    )
    
    
    2.82Balance at June 30, 2005
    
    
    425
    
    
    
    6,834
    
    
    
    1.61Additional shares reserved
    
    
    730
    
    
    
    
    
    
    
    Granted
    
    
    (170
    )
    
    
    170
    
    
    
    2.02Exercised
    
    
    
    
    
    
    (174
    )
    
    
    0.97Cancellations
    
    
    89
    
    
    
    (89
    )
    
    
    2.75Balance at September 30, 2005
    
    
    1,074
    
    
    
    6,741
    
    
    
    1.62Granted
    
    
    (370
    )
    
    
    370
    
    
    
    1.72Exercised
    
    
    
    
    
    
    (152
    )
    
    
    1.36Cancellations
    
    
    4
    
    
    
    (4
    )
    
    
    2.63Balance at December 31, 2005
    
    
    708
    
    
    
    6,955
    
    
    
    1.63
  8




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##### Table of Contents



Options Outstanding
    
    
    Options ExerciseableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNumber
    
    
    Remaing
    
    
    Average
    
    
    
    
    
    
    Number
    
    
    Average
    
    
    AggregateOutstanding
    
    
    Contrctual
    
    
    Exercise
    
    
    Aggregate
    
    
    Exerciseable
    
    
    Exercise
    
    
    IntrinsicRange of Prices

    

(thousands)
    
    
    Life
    
    
    Price
    
    
    Intrinsic Value
    
    
    (thousands)
    
    
    Price
    
    
    Value$0.12 - $0.76
    
    
    715
    
    
    
    6.75
    
    
    $
    0.54
    
    
    $
    1,187
    
    
    
    547
    
    
    $
    0.52
    
    
    $
    919$1.20 - $1.20
    
    
    105
    
    
    
    8.85
    
    
    
    1.20
    
    
    
    105
    
    
    
    31
    
    
    
    1.20
    
    
    
    31$1.27 - $1.27
    
    
    1,000
    
    
    
    5.92
    
    
    
    1.27
    
    
    
    930
    
    
    
    1,000
    
    
    
    1.27
    
    
    
    930$1.35 - $1.35
    
    
    25
    
    
    
    9.21
    
    
    
    1.35
    
    
    
    21
    
    
    
    9
    
    
    
    1.35
    
    
    
    8$1.39 - $1.39
    
    
    1,765
    
    
    
    6.50
    
    
    
    1.39
    
    
    
    1,430
    
    
    
    
    
    
    
    
    
    
    
    $1.42 - $1.47
    
    
    1,074
    
    
    
    8.71
    
    
    
    1.45
    
    
    
    806
    
    
    
    390
    
    
    
    1.45
    
    
    
    293$1.50 - $1.57
    
    
    948
    
    
    
    7.89
    
    
    
    1.55
    
    
    
    616
    
    
    
    537
    
    
    
    1.55
    
    
    
    349$1.67 - $2.00
    
    
    732
    
    
    
    8.33
    
    
    
    1.77
    
    
    
    315
    
    
    
    307
    
    
    
    1.73
    
    
    
    144$2.08 - $9.00
    
    
    569
    
    
    
    5.27
    
    
    
    4.23
    
    
    
    
    
    
    
    524
    
    
    
    4.41
    
    
    
    $11.00 - $11.00
    
    
    33
    
    
    
    4.58
    
    
    
    11.00
    
    
    
    
    
    
    
    33
    
    
    
    11.00
    
    
    
    $0.12
    
    
    6,966
    
    
    
    7.10
    
    
    $
    1.63
    
    
    $
    5,409
    
    
    
    3,378
    
    
    $
    1.84
    
    
    $
    2,673
   WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNumber
    
    
    Remaing
    
    
    Average
    
    
    
    
    
    
    Number
    
    
    Average
    
    
    AggregateRange of
    
    Outstanding
    
    
    Contractual
    
    
    Exercise
    
    
    Aggregate

    
    Exerciseable
    
    
    Exercise
    
    
    IntrinsicPrices
    

(thousands)
    
    
    Life
    
    
    Price
    
    
    Intrinsic Value
    
    
    (thousands)
    
    
    Price
    
    
    Value$0.50 - $1.38
    
    
    115
    
    
    
    1.98
    
    
    $
    1.08
    
    
    $
    129
    
    
    
    58
    
    
    $
    0.87
    
    
    $
    78$1.39 - $1.65
    
    
    80
    
    
    
    1.38
    
    
    
    1.58
    
    
    
    50
    
    
    
    50
    
    
    
    1.59
    
    
    
    30$1.66 - $2.10
    
    
    126
    
    
    
    3.19
    
    
    
    1.73
    
    
    
    59
    
    
    
    11
    
    
    
    1.68
    
    
    
    5321
    
    
    
    2.30
    
    
    $
    1.46
    
    
    $
    238
    
    
    
    119
    
    
    $
    1.24
    
    
    $
    113
  9




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##### Table of Contents



Stock-Based Compensation
 Effect of Early Adoption of SFAS 123(R)
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for
Stock-Based Compensation, Transition and Disclosure
  Accounting for
Stock-Based Compensation Accounting for Stock-Based Compensation,
Transition and Disclosure
   Valuation and Expense Information under SFAS 123(R)
  10




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded December
    
    
    Ended December31, 2005
    
    
    31, 2005Stock-based compensation expense included in cost of sales
    
    $
    20
    
    
    $
    56Research and development
    
    
    123
    
    
    
    344Sales and marketing
    
    
    70
    
    
    
    210General and administrative
    
    
    156
    
    
    
    429Stock-based compensation expense included in operating expense
    
    
    349
    
    
    
    983Stock-based compensation expense related to employee stock
options, employee stock purchases and stock appreciation rights
    
    $
    369
    
    
    $
    1,039
  Three Months Ended December 31, 2005
    
    
    Nine Months Ended December 31, 2005Using
    
    
    SFAS
    
    
    
    
    
    
    UsingPrevious
    
    
    123(R)
    
    
    
    
    
    
    Previous
    
    
    SFAS 123(R)
    
    
    AsAccounting
    
    
    Adjustment
    
    
    As Reported
    
    
    Accounting
    
    
    Adjustment
    
    
    ReportedLoss from operations
    
    $
    (1,478
    )
    
    $
    (369
    )
    
    $
    (1,847
    )
    
    $
    (5,481
    )
    
    $
    (1,039
    )
    
    $
    (6,520
    )Net loss
    
    $
    (1,364
    )
    
    $
    (369
    )
    
    $
    (1,733
    )
    
    $
    (5,156
    )
    
    $
    (1,039
    )
    
    $
    (6,195
    )Basic and diluted net loss per share
    
    $
    (0.06
    )
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    (0.22
    )
    
    $
    (0.04
    )
    
    $
    (0.26
    )Net cash used in operating activities
    
    $
    (1,821
    )
    
    
    
    
    
    $
    (1,821
    )
    
    $
    (6,464
    )
    
    
    
    
    
    $
    (6,464
    )Net cash provided by investing activities
    
    $
    2,115
    
    
    
    
    
    
    $
    2,115
    
    
    $
    8,447
    
    
    
    
    
    
    $
    8,447
 Valuation Assumptions for Stock Options
  11




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##### Table of Contents



Three months
    
    Nine monthsended December
    
    ended December31, 2005
    
    31, 2005Stock Option PlanRisk-free interest rate
    
    
    4.2
    %
    
    
    3.9
    %Expected life (in years)
    
    
    3.0
    
    
    
    3.9Volatility
    
    
    89.7
    %
    
    
    90.3
    %SARS PlanRisk-free interest rate
    
    
    4.2
    %
    
    
    3.9
    %Expected life (in years)
    
    
    4.0
    
    
    
    4.0Volatility
    
    
    89.7
    %
    
    
    90.3
    %
   For the three
    
    
    For the ninemonths ended
    
    
    monthsDecember 31,
    
    
    December2004
    
    
    31, 2004Net loss as reported
    
    $
    (1,580
    )
    
    $
    (4,703
    )Less: stock based compensation determined under FAS 123
    
    
    (357
    )
    
    
    (1,315
    )Pro forma net loss
    
    $
    (1,937
    )
    
    $
    (6,018
    )Basic and diluted net loss per share:As reported
    
    $
    (0.07
    )
    
    $
    (0.21
    )Pro forma
    
    $
    (0.08
    )
    
    $
    (0.26
    )
 Net Loss Per Share
  12




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##### Table of Contents



For the Three Months
    
    
    For the Nine MonthsEnded December 31
    Ended December 312005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (1,733
    )
    
    $
    (1,580
    )
    
    $
    (6,195
    )
    
    $
    (4,703
    )Weighted average shares used in computing basic and net loss per share
    
    
    23,579
    
    
    
    22,857
    
    
    
    23,390
    
    
    
    22,754Basic and diluted net loss per share
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.26
    )
    
    $
    (0.21
    )Options and warrants excluded from the computation of diluted net loss per share
    
    
    6,955
    
    
    
    5,928
    
    
    
    6,955
    
    
    
    5,928
  13




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##### Table of Contents



Note 3. Balance Sheet Components (in thousands)
 December 31,
    
    March 31,2005
    
    2005Accounts receivable, netTrade receivables
    
    $
    3,431
    
    
    $
    912Less: Allowance for doubtful accounts
    
    
    (387
    )
    
    
    (120
    )$
    3,044
    
    
    $
    792Inventories:Work in process
    
    $
    1,368
    
    
    $
    515Finished goods
    
    
    344
    
    
    
    83$
    1,712
    
    
    $
    598Property and equipment, net:Furniture and fixtures
    
    $
    175
    
    
    $
    441Machinery and equipment
    
    
    2,941
    
    
    
    2,473Software
    
    
    2,897
    
    
    
    2,8516,013
    
    
    
    5,765Less: Accumulated depreciation
and amortization
    
    
    (5,028
    )
    
    
    (4,677
    )$
    985
    
    
    $
    1,088Other assets:License technology
    
    $
    829
    
    
    $
    482Less: Amortization
    
    
    (519
    )
    
    
    (128
    )License technology, net
    
    $
    310
    
    
    
    354Deposits
    
    
    65
    
    
    
    32$
    375
    
    
    $
    386Accrued liabilities and other:Accrued compensation costs
    
    $
    1,071
    
    
    $
    492Accrued license technology
    
    
    
    
    
    
    700Accrued audit and legal
    
    
    278
    
    
    
    192Accrued inventory
    
    
    898
    
    
    
    189Other
    
    
    158
    
    
    
    165$
    2,405
    
    
    $
    1,738
 14




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##### Table of Contents



Note 4. Short-term Investments
  Mature Less Than 12 MonthsCost
    
    


    Aggregate
    
    


    UnrealizedValue
       
    

    Fair Value
    
    

    Gain/ (Loss)(In thousands)As of December 31, 2005U.S. government and agency securities
    
    $
    1,000
    
    
    $
    997
    
    
    $
    (3
    )U.S. corporate and bank debt
    
    
    7,847
    
    
    
    7,868
    
    
    
    21Total
    
    $
    8,847
    
    
    $
    8,865
    
    
    $
    18As of March 31, 2005U.S. government and agency securities
    
    $
    7,000
    
    
    $
    6,958
    
    
    $
    (42
    )U.S. corporate and bank debt
    
    
    10,753
    
    
    
    10,706
    
    
    
    (47
    )Total
    
    $
    17,753
    
    
    $
    17,664
    
    
    $
    (89
    )
 Note 5. Certain Risks
  Significant customers
   For the Three Months
    
    For the Nine MonthsEnded December 31
    
    Ended December 31,2005
    
    2004
    
    2005
    
    2004Customer A
    
    
    18
    %
    
    
    *
    
    
    
    *
    
    
    
    *Customer B
    
    
    10
    %
    
    
    *
    
    
    
    *
    
    
    
    *Customer C
    
    
    10
    %
    
    
    *
    
    
    
    12
    %
    
    
    *Customer D
    
    
    10
    %
    
    
    *
    
    
    
    13
    %
    
    
    *Customer E
    
    
    10
    %
    
    
    *
    
    
    
    *
    
    
    
    *Customer F
    
    
    *
    
    
    
    53
    %
    
    
    10
    %
    
    
    40
    %
 
 (* = less than 10%) Concentration of Credit Risk
 15




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##### Table of Contents



December 31,
    
    March 31,2005
    
    2005Customer A
    
    
    21
    %
    
    
    19
    %Customer B
    
    
    16
    %
    
    
    27
    %Customer C
    
    
    16
    %
    
    
    *Customer D
    
    
    *
    
    
    
    27
    %
 
  Vendor Concentration
   16




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##### Table of Contents



Note 6. Segment and Geographic Information
   For the Three Months
    
    For the Nine MonthsEnded Decemberr 31,
    

Ended December 31,2005
    
    2004
    
    2005
    
    2004China
    
    
    42
    %
    
    
    *
    
    
    
    43
    %
    
    
    *Europe
    
    
    7
    %
    
    
    52
    %
    
    
    11
    %
    
    
    41
    %Japan
    
    
    35
    %
    
    
    14
    %
    
    
    23
    %
    
    
    17
    %United States
    
    
    21
    %
    
    
    17
    %
    
    
    20
    %
    
    
    13
    %Other
    
    
    -5
    %
    
    
    17
    %
    
    
    3
    %
    
    
    29
    %
 
  Note 7. Commitments and Contingencies
 Stock Repurchase
   Litigation
  Commitments
    17




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##### Table of Contents



Fiscal
    
    Notes
    
    
    OperatingYear
    
    Payable
    
    
    Leases
    
    
    Total2006
    
    $
    250
    
    
    $
    53
    
    
    $
    3032007
    
    
    425
    
    
    
    172
    
    
    
    5972008
    
    
    225
    
    
    
    
    
    
    
    225Total minimum payments
    
    
    900
    
    
    $
    225
    
    
    $
    1,125Less: Amount representing interest
    
    
    (66
    )Present value of minimum payments
    
    
    834Less: Current portion
    
    
    (630
    )Long term portion
    
    $
    204
 18




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##### Table of Contents



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
       19




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Critical Accounting Policies and Estimates
  Results of Operations
  Three Months Ended
    
    Nine Months EndedDecember 31,
    
    December 31,2005
    
    2004
    
    2005
    
    2004Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    48
    %
    
    
    54
    %
    
    
    52
    %
    
    
    55
    %Gross profit
    
    
    52
    %
    
    
    46
    %
    
    
    48
    %
    
    
    45
    %Operating expenses:Research and development
    
    
    49
    %
    
    
    111
    %
    
    
    70
    %
    
    
    166
    %Sales and marketing
    
    
    32
    %
    
    
    40
    %
    
    
    38
    %
    
    
    40
    %General and administrative
    
    
    39
    %
    
    
    50
    %
    
    
    58
    %
    
    
    63
    %Total operating expenses
    
    
    120
    %
    
    
    201
    %
    
    
    166
    %
    
    
    269
    %Operating loss
    
    
    -68
    %
    
    
    -155
    %
    
    
    -118
    %
    
    
    -224
    %Interest income
    
    
    4
    %
    
    
    10
    %
    
    
    6
    %
    
    
    14
    %Net loss
    
    
    -64
    %
    
    
    -145
    %
    
    
    -112
    %
    
    
    -210
    %
 Revenues
 20




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##### Table of Contents



Gross margin
 Research and development SFAS No. 123(R)
 Sales and marketing SFAS No. 123(R)
 General and administrative
 21




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##### Table of Contents



SFAS No. 123(R)
 Other income, net
 Provision for income tax
 Liquidity and Capital Resources
     Stock Repurchases
  22




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Contractual commitments and Off-Balance Sheet Arrangements
    Contractual Obligations
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsNotes Payable
    
    
    900
    
    
    
    250
    
    
    
    650
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    225
    
    
    
    198
    
    
    
    27
    
    
    
    
    
    
    
    Total
    
    
    1,125
    
    
    
    448
    
    
    
    677
    
    
    
    
    
    
    
    
  23




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##### Table of Contents



RISK FACTORS
 We expect continuing losses and may not achieve profitability which could affect our ability to
expand our business.
  Because
the emergence of the interactive television market and the continued growth
of the LCD television market has been slower than anticipated, we may
not be able to sell our products or sustain our business.
  A significant amount of our revenues comes from a few customers and any decrease in revenues
from these customers could significantly impact our financial results
  Our operating expenses may increase as we build our business and these increased expenses may
impact our ability to become profitable.
  24




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##### Table of Contents



Because of our long product development process and sales cycle, we incur substantial expenses
before we generate revenues and may not recover our expenditures
   If we fail to successfully develop, introduce and sell new products, we may be unable to
effectively compete in the future
  
    
    our failure to complete new product designs in a timely manner;
    
    our inability to manufacture our new products according to design specifications;
    
    our inability to deliver our products to our customers in a timely manner for any reason,
including a lack of manufacturing capacity or the failure of our contracted foundries to meet
targeted-manufacturing yields; and
    
    our sales forces and independent distributors inability to create adequate demand for
our products.
 25




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##### Table of Contents



Our future operating results are likely to fluctuate and may fail to meet expectations which could
cause our stock price to decline.
  
    
    the general condition of the semiconductor industry market;
    
    fluctuations in the volume of product sales, changes in product mix and pricing concessions on sales;
    
    the timing, rescheduling or cancellation of significant customer orders;
    
    the timing of investments in, and the results of, research and development;
    
    changes in industry standards;
    
    introduction of interactive television services by service providers;
    
    availability of manufacturing capacity and raw materials, and inventory write-offs;
    
    product introductions and price changes by our competitors;
    
    our ability to specify, develop, introduce and market new products with smaller
geometries, more features and higher levels of design integration in accordance with
design requirements and design cycles;
    
    the level of orders received that can be shipped in a given period;
    
    changes in earning estimates or investment recommendations by analysts;
    
    changes in investors perceptions; and
    
    the effect of the terrorist attacks in the United States and any related conflicts or similar events worldwide.
 Our industry is highly competitive, and we cannot assure you that we will be able to effectively
compete.
  
    
    functionality;
    
    performance;
    
    time to market;
    
    price;
    
    conformity to industry standards;
 26




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##### Table of Contents




    
    product road maps; and
    
    technical support.
   We
depend on two independent foundries to manufacture our products based on our forecasts,
which could result in an oversupply or undersupply of products
     If we have to qualify new independent foundries for any of our products and do not have sufficient
supply of our products on hand, we may lose revenues and damage our customer relationships.
  27




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##### Table of Contents



Our semiconductors are complex to manufacture and may have errors or defects which could be
costly to correct
  Our software is complex and may have bugs or defects which could be costly to correct
  We face foreign business, political and economic risks because a majority of our sales are to
customers outside of the United States
  28




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##### Table of Contents



If the industries into which we sell our products experience recession or other cyclical effects
impacting our customers budgets, our operating results could be negatively impacted.
     We depend on key personnel, the loss of whom would impair or inhibit the growth of our business.
  29




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##### Table of Contents



We rely on strategic relationships to commercialize our products, and these relationships may
require that we expend significant resources without guarantees that our endeavors will be
profitable.
  We depend on third-party subcontractors for assembly of our semiconductors which reduces our
control over the delivery, quantity, quality, or cost of our products
  Political instability in the Peoples Republic of China or Taiwan could harm our manufacturing and
research and development capabilities and negatively impact our product sales
  If our competitors use our intellectual property and proprietary rights, our ability to
compete would be impaired.
   30




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##### Table of Contents



We may face intellectual property infringement claims that could be costly and could result in the
loss of proprietary rights which are necessary to our business
  Regulation of our customers products may slow the process of introducing new products and could
impair our ability to compete
  
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative and Qualitative Discussion of Market Interest Rate Risk and Foreign Currency Exchange Risk
  31




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##### Table of Contents



ITEM 4: CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
   Changes in internal control over financial reporting.
  
 PART II: OTHER INFORMATION
 32




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##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber3(i).1
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to the exhibit of the same number in the Registrants
Form 10-Q for the quarter ended June 30, 2005, as filed with the
SEC on August 15, 2005 to Amendment No. 8 to the Companys
Registration Statement on Form S-1 (File No. 333-34024)).3(ii).1
    
    Amended and Restated Bylaws of Tvia, Inc. (incorporated by
reference to the exhibit of the same number in the Registrants
Form 10-Q for the quarter ended June 30, 2005, as filed with the
SEC on August 15, 2005).31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**32.2
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
 
 **
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and
34-47986, Final Rule: Managements Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in
Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed filed
for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to
the extent that the registrant specifically incorporates it by reference. 33




---



##### Table of Contents



SIGNATURES
  TVIA, INC.February 14, 2006
    
    By:
    
    /s/ Diane BjorkstromDiane BjorkstromChief Financial Officer and Vice President,Administration(Principal Financial Officer andDuly Authorized Signatory)
 34




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber3(i).1
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to the exhibit of the same number in the Registrants
Form 10-Q for the quarter ended June 30, 2005, as filed with the
SEC on August 15, 2005 to Amendment No. 8 to the Companys
Registration Statement on Form S-1 (File No. 333-34024)).3(ii).1
    
    Amended and Restated Bylaws of Tvia, Inc. (incorporated by
reference to the exhibit of the same number in the Registrants
Form 10-Q for the quarter ended June 30, 2005, as filed with the
SEC on August 15, 2005).31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**32.2
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.**
 
 **
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and
34-47986, Final Rule: Managements Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in
Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed filed
for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to
the extent that the registrant specifically incorporates it by reference.